Isabel Schnabel: Looking through higher energy prices? Monetary policy and the green transition

Speech by Ms Isabel Schnabel, Member of the Executive Board of the European Central Bank, at a panel on "Climate and the Financial System" at the American Finance Association 2022 Virtual Annual Meeting, Frankfurt am Main, 8 January 2022.

The views expressed in this speech are those of the speaker and not the view of the BIS.

Accompanying slides: https://www.bis.org/review/r220111a_slides.pdf

In 2021 the global economy was shaken by a major energy crisis. Prices for oil, gas and electricity surged as our economies reopened after the shutdowns imposed in response to the coronavirus (COVID-19) outbreak.

Though last year's events were extraordinary on many levels, spikes in energy prices are a common phenomenon. Since the 1970s, sharp movements in energy prices have been a recurring source of economic dislocations and volatility.

And yet, the roots of today's shock are likely to go deeper. While in the past energy prices often fell as quickly as they rose, the need to step up the fight against climate change may imply that fossil fuel prices will now not only have to stay elevated, but even have to keep rising if we are to meet the goals of the Paris climate agreement.